Global Market Entry Strategies: Licensing, Investment, and Strategic Alliances

Licensing A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation Patent Trade secret Brand name Product formulations

Advantages to Licensing Provides additional profitability with little initial investment Provides method of circumventing tariffs, quotas, and other export barriers Attractive ROI (Return On Investment) Low costs to implement First, because the licensee is typically a local business that will produce and market the goods on a local or regional basis, licensing enables companies to circumvent tariffs, quotas, or similar export barriers discussed in Chapter 8.

Disadvantages to Licensing Limited participation Returns may be lost Lack of control Licensee may become competitor Licensee may exploit company resources

Special Licensing Arrangements Contract manufacturing Company provides technical specifications to a subcontractor or local manufacturer Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities Franchising Contract between a parent company-franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies

Franchising Questions Will local consumers buy your product? How tough is the local competition? Does the government respect trademark and franchiser rights? Can your profits be easily repatriated? Can you buy all the supplies you need locally? Is commercial space available and are rents affordable? Are your local partners financially sound and do they understand the basics of franchising?

Investment Partial or full ownership of operations outside of home country Foreign Direct Investment Forms Joint ventures Minority or majority equity stakes Outright acquisition